Brokerages slash HTC price targets

DOWNWARD PRESSURE:：HTC may be robbed of its ranking as the world’s No. 5 smartphone maker if its shipments continue to decline in the fourth quarter

By Helen Ku / Staff reporter

Mon, Oct 29, 2012 - Page 13

Analysts at foreign brokerages slashed their target prices for HTC Corp (宏達電) over the weekend after the smartphone maker on Friday offered a worse-than-expected guidance for the fourth quarter.

The downward adjustment is likely to add further pressure on HTC, which already saw its shares edge down 4.84 percent to end at NT$236 in Friday trading before it released its bearish outlook for the quarter.

During its earnings conference call, HTC forecast its revenue will fall by 14.5 percent in the period between this month and December to about NT$60 billion (US$2 billion) from NT$70.2 billion in the third quarter, while gross margin and operating margin are set to decline to 23 percent and 1 percent, from 25 percent and 7 percent respectively.

Based on HTC’s guidance, the company might lose its No. 5 smartphone firm spot by shipping less than 7 million smartphones in the fourth quarter, Nomura Securities and CLSA Asia-Pacific Markets said.

At least five foreign brokerages have slashed their target prices on HTC, with BNP Paribas cutting the most, from NT$224 to NT$100.

BNP Paribas analyst Laura Chen (陳佳儀) said HTC’s unexpected sales slide was mainly due to a delay in new product launches and less effective spending on marketing.

Over the past two years, the Taoyuan-based company has been steadily exploring Asian markets, especially China, by building distribution channels as well as increasing advertising in the region, leading its marketing expenses to account for between 8 percent and 12 percent of its total revenue, higher than Samsung Electronics Co’s 5.8 percent.

However, Chen said the company might still be facing strong headwinds.

“We are worried that HTC’s recent strong growth in China will be short-lived,” she wrote in a report.

Analysts also warned HTC would likely report a quarterly loss in the near future due to tough competition and shrinking margins in its launch of low-cost products in China.

Hua Nan Securities Investment Management assistant vice president Green Wu (吳積霖) yesterday said HTC could report loss for this quarter and next quarter.

With regard to HTC’s Windows Phone 8X and 8S, which are estimated to hit the market next month, Wu maintains a downbeat attitude.

“Microsoft Corp does not allow its hardware partners to modify its software as much as Google does. It limits HTC from adding special features like HTC Sense to differentiate its product from others,” Wu said. “It is also doubtful whether the market will adopt the Windows Phone.”